What's in an Interest Rate?

A mortgage is defined as a loan used to buy a house. The buyer agrees to pay back the loan over time, typically 30 years with payments that include principal (the amount of the house) plus the interest (the charge for borrowing the money). The property is the lender’s collateral. In the same way a car is repossessed if car payments are not made, failure to make payments on a mortgage will result in foreclosure. 

Mortgage interest rates make a huge difference in a buyer’s ability to finance a home and make the monthly payment. Mortgage rates are determined by several factors including the economy and inflation. Some may remember that mortgage interest rates climbed to over 18% back in the 1980s. This is truly hard to imagine especially when comparing it to the record low of 2.65% in 2021 that was caused by the pandemic. Today the interest rate for a fixed 30-year mortgage is hovering around 7% with indications that it will be even lower in 2024. 

Mortgage interest rates change all of the time and there is no way to predict them. Things can happen that can cause a drastic change. The pandemic was a good example. Other changes can be brought about by the election of a new administration. As consumers, we do not have any control over these things. However, buyers with the best financial situations obtain the lowest possible interest rate so it is a good idea for buyers to keep their credit score as high as possible and build their savings. A credit score of 670 and above is generally considered good. The more money a buyer can put down and the higher their credit score, the lower their interest rate will be.